What are DAOs? The Next Big Thing In The Crypto World

Nobody had thought, even in their wildest dreams, that crypto technologies would grow exponentially and that, too, within a matter of a few years. From cryptocurrencies to NFTs , it’s like a whole new world out there to explore and exploit. People ventured from different walks of life, writing new success stories individually. Soon the interest in crypto grew so much that investors thought of pooling their resources to make good on bigger and better investments. This was when the DAOs started becoming visible.

A DAO is an internet-native organization. These do not have a centralized leadership and are owned and controlled by the members themselves. It does not have any hierarchical administration either. Also, these can be made to serve different objectives. The DAOs have in-built treasuries accessed only with the permission of the members. Decisions are always taken bottom-up through voting. A suggestion or suggestions are presented to the group over which everyone votes within a fixed timeframe. Based on the outcome of the vote, the suggestion may or may not pass, resulting in the decision.

1. Trust Shifts From People To Smart Contracts – Traditionally, a partnership of any sort requires trust between parties. A DAO does away with this basic requirement because the investors or members here choose to put their trust in the code that governs or regulates the group and its endeavors. Placing one’s trust in code is not difficult because it is painstakingly tested for vulnerabilities. Nobody can do this for the people.
2. Decisions Guided By Voting – All decisions are guided by voting. Therefore, once the DAO is in existence, every action it executes will be guided by the majority vote and acceptable to all stakeholders. The process will be open and easy to verify. Even internal conflicts are resolved through voting in harmony with the rules written under the smart contract.
3. No Hierarchy So Any Member Can Put Up Ideas – In a traditional organizational structure, there is a hierarchy that must be followed at all times, even when giving suggestions or ideas. It leads to wastage of time and occasionally results in an opportunity. In a DAO, there exists no hierarchy, so anyone can come forth with a new idea and submit it for voting in front of the community. Sometimes the group may come together to refine the concept before putting it up for voting.
4. Proportionate Sharing Of Risks And Gains – DAOs allow investors to create a cash pool or reserve. All initiatives they undertake, resulting in gains or losses, are shared by the community members in proportion to their investment.
5. DAOs Are Transparent – DAOs are built on open-source blockchains so anybody can access their code. Also, the blockchain records all monetary transactions allowing anyone to audit the treasuries built inside it. So transparency is guaranteed.

Any person who desires to be a part of an existing DAO submits a proposal to join it. Typically, the proposal is extended along with an offering or payment of some value. This offering is in the form of the blockchain’s token. You could also say it is like buying shares of the DAO where the value of shares (tokens) one owns decides the member’s voting power.

DAOs use smart contracts to establish their boundaries or regulations. Smart contracts are fragments of code running automatically when a set of predetermined criteria is fulfilled. People having a stake in the DAO cast their vote to affect the functioning or control over new ideas. Only the suggestions approved by the majority of stakeholders are considered final decisions. However, the definition of majority tends to differ from DAO to DAO, but it is usually defined in smart contracts.

Exiting or leaving a DAO is an easy process. Members can leave anytime. Leaving doesn’t mean your investment has gone down the drain. You can collect your proportionate share from the built-in treasury and call it quits. Another option is to sell your tokens in the open market and leave.

There are three main steps to launching a DAO:

1. Creation Of Smart Contract – The first step is the creation of a smart contract to establish regulations. The biggest thing here is to ensure there is no overlooking of any critical attributes, and for this reason, the developers must do careful and exhaustive testing.
2. Receiving Funding – Once the smart contract is in place, it’s time to arrange the finance. The DAO must now decide the form in which it will receive the funding and execute governance. To arrange the funds, tokens are sold. These tokens, in turn, represent the holders or members’ voting power.
3. Deployment On Blockchain – Finally, it’s time to launch the DAO on the blockchain. From here on, the members guide the future of the group through decisions taken through voting. From this point onwards, the developers of the group (smart contract creators) cease to have much influence and operate like other stakeholders.

Think of DAOs like a group of people having the same bank account. But all decisions, be it trading or governance-related everything happens through voting. It does away with the drawbacks of traditional organizational structures and thereby reduces all the unnecessary protocols, red-tape, and even office politics.

The popularity of DAOs is fast bringing in a future where having equity will not be necessary. The companies will have tokens and will most likely be represented as DAOs. It will provide a medium for companies to arrange financing without relying on traditional lending mediums. Although reaching that point is still something that needs a lot of working and refining. Potential legal and regulatory challenges will have to be addressed, and the masses will have to be educated of all the possibilities it could represent.

DAOs have the capability to give corporate governance a complete makeover. As the crypto business grows, DAOs will also evolve and become mainstream. After NFTs, they are the next stepping stone in inculcating cryptos in businesses. They are definitely something to look out for. The change has started, and we are on the brink of a revolution that will shape and fuel a new way of doing business.